BUSINESS ETHICS LECTURE NOTES
LECTURE 1 - WEEK 1
What’s the right thing to do?
For example: would you ever work for a company that made landmines?
Some would say yes, as it is good business
Others would say no, as the basic purpose of landmines is to kill people
Another example: is tax avoidance morally permissible?
An important goal of a course like this is to try to develop theoretical perspectives/tools
to come to a reasonable answer to complicated questions which are related to the
business world. Still, we will run into situations where different students/individuals
may have different opinions/principles and we try to listen to each other, evaluate
arguments and to find an optimal solution. At the same time, we have to realize that
some topics may be very complicated and that a final solution will never be found.
What is business ethics?
We try to address the moral features of commercial activities. We try to apply different
theories (so it has a strong theorical component), we will develop theoretical concepts
and principles and we also have to take a practical perspective, the perspective on how
to apply these theories and about the question how different people think about
different theories. It’s about theory and application. How to think about issues and what
to do about them.
Morality and Ethics
Often used interchangeably, however, both are different:
› Morality is concerned with the norms, values and beliefs embedded in social
processes which define right and wrong for an individual or a community
(changing moral: see next slide)
› Ethics is concerned with the study of morality and the application of reason to
elucidate specific rules and principles that determine right and wrong for any
given situation
› These rules and principles are called ethical theories
Morality determines what people in a certain country/society found acceptable and
what not. Morality is not a constant factor. The idea people may have about certain
topics may change (over time).
There are two types of ethical theory
Ethical theories are the rules and principles that determine right and wrong for any
given situation
› Normative ethics prescribes morally correct way of acting
› Descriptive ethics describes how ethics decisions are actually made in
business (how do people come to a decision)
The scope of Business Ethics
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, A. Systemic ethical issues concern the social, political, legal or economic systems
within which companies operate
B. Corporate ethical issues concerning corporations and their policies, culture,
climate, impact or actions
C. Individual ethical issues concern a particular individual’s decisions, behavior or
character
A – in this course we will dedicate quite some time to the question of systemic ethics.
Here we discuss public policy, the impact of international institutions, and
environmental law.
B – corporate level is a special characteristic of business ethics, to talk about CR. What
we’re seeing more is that we have to deal with corporations that are so large that their
size and corresponding influence provide forces them to act in a certain way.
› Size and influence make them special
› As an employee you can contribute to
› Corporate culture and values
› Corporate decision-making procedures (e.g. The triple bottom line)
› As a consumer, social activist, citizen can also have opinions.
If you think about the largest companies of the world and you realize that some of these
companies have a total market capitalization that is larger than the total size of certain
countries, you’ll realize too that size does not only have an effect on the influence of
these large companies but also has an effect on how these companies are expected to
behave and how their responsibility should be organized and how they influence
millions of people.
Corporate Social Responsibility (CSR)
› Refers to a corporation’s responsibilities or obligations toward society
› Business ethics is both a part of corporate social responsibility and part of the
justification for corporate social responsibility
› Two main accounts: Shareholders vs. Stakeholders
§ Turns around what corporations are – private or public institutions.
The debate started already some time ago by people such as
Milton Friedman
- Argued in a famous article from the NYT (50 years ago) that the social
responsibility of a business is to increase its profits. He came up with a lot of
arguments for that, and that idea has been a leading idea for many people in
academia and business. Today we’ll find people that are in favor of that idea.
- Arguments:
o Moral responsibility
Only human beings have a moral responsibility for their actions
o Shareholder interests
It is managers’ responsibility to act solely in the interests of
shareholders
o Role of corporations and state
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, Social issues and problems are the proper province of the state
rather than managers
A strong opponent of this idea was
Edward Freeman (philosopher and professor of BA)
He was in favor of the stakeholder theory:
› A stakeholder of an organization is any group or individual who can affect, or is
affected by, the achievement of the organization’s objectives
› Stakeholders have legitimate claims towards the organization
§ Principle of corporate rights: corporation has obligation not to violate
rights of others
§ Principle of corporate effect: corporation is responsible for effects of
actions on other
This theory can be seen as an opposing theory to the shareholder theory. We call this the
shareholder vs stakeholder debate.
This debate has been going on for 50 years or so, but it has intensified over the last
couple of years which has led to an important message where a number of CEOs of the
most influential companies you can think about (e.g., Amazon, Bank of America)
published a letter and said that companies must also invest in employees and delivering
value to customers.
- In other words: they seem to introduce a commitment to stakeholder theory.
The effect of this initiative was that, a year later, there was a senator who addressed the
people who published the letter, saying that a year had passed since the letter was
published alongside the question what has actually happened since then. He asked them
to describe the steps the companies were making to meet the promises they made.
Not only a lively debate in US, also in EU and NL.
C – Individual
› Organizational ethics – member of a community, a profession, a hierarchy
§ team spirit, duties, loyalty
› Conflicts with morality as usual
§ Competitive ethics violates the Golden Rule
§ Greater implications of your conduct
§ Fiduciary responsibility (e.g., Generosity)
› Autonomy – is this compatible with the moral character you want to be?
Some people argue that business ethics as such may not be relevant. We can challenge
the idea to talk about business in the first place based on a few lines of thought that
some people believe are relevant.
1. Moral relativism
2. Egoism
3. The market will take care of everything
4. Ethics and the law
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, - Moral relativism
› According to moral relativism there are no ethical standards that are absolutely
true and that apply to people and companies of all societies
› Point of moral relativism:
§ Accept social obligations that are not unethical
§ Tolerance of difference (‘subsidiarity’)
§ Take opportunity for self-scrutiny
Adhere to the local moral culture and everyone should do business how business is
supposed to be conducted in a specific area. When in Rome, act as the Romans do.
› According to Integrative Social Contracts Theory, there are two kinds of moral
standards
§ Hypernorms are moral standards that should be applied to people in all
societies
§ Microsocial norms are norms that differ from one community to another
and that should be applied to people only if their community accepts those
particular norms
Objections
› Some moral standards are found in all societies
› Moral differences do not logically imply relativism
› Relativism has incoherent consequences
› Because relativism priviliges simply whatever moral standards are widely
accepted in a society, even if we know that such a moral standard is
problematic. Example: position of women in countries like Afghanistan.
The fact that women are not having the same sort of priviliges that men
have, is from a normative ethical perspective very problematic. You could
argue that it is part of culture and that therefore it is justified, but in the
end it’s not right.
› Relativism privileges whatever moral standards are widely accepted in a society
2. Egoism
- All that matters is to advance your own interests
- Some Objections
a. Doesn’t work: no one trusts a pure opportunist. Egoism collapses into
other - regarding morality.
b. You are not the corporation (and, is a corporation the kind of entity that
can have an ego? - Ch. 5 on ‘Responsibility’)
c. What interests should you maximise? (Is the good life about money or
virtue?)
3. The market will take care of everything
› Market actors are rational (‘prudent’)
› Customers, suppliers etc. will only do business with companies with a reputation
for integrity
› Thus, corporations that do not act morally will suffer economically
› Companies can see this for themselves so they have an incentive to act moral
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